Correlation Between GreenTree Hospitality and Arcos Dorados

Can any of the company-specific risk be diversified away by investing in both GreenTree Hospitality and Arcos Dorados at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining GreenTree Hospitality and Arcos Dorados into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between GreenTree Hospitality Group and Arcos Dorados Holdings, you can compare the effects of market volatilities on GreenTree Hospitality and Arcos Dorados and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in GreenTree Hospitality with a short position of Arcos Dorados. Check out your portfolio center. Please also check ongoing floating volatility patterns of GreenTree Hospitality and Arcos Dorados.

Diversification Opportunities for GreenTree Hospitality and Arcos Dorados

0.61

Correlation Coefficient

GreenTree Hospitality  Arcos Dorados

Poor diversification

The 3 months correlation between GreenTree and Arcos is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding GreenTree Hospitality Group and Arcos Dorados Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Arcos Dorados Holdings and GreenTree Hospitality is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on GreenTree Hospitality Group are associated (or correlated) with Arcos Dorados. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Arcos Dorados Holdings has no effect on the direction of GreenTree Hospitality i.e., GreenTree Hospitality and Arcos Dorados go up and down completely randomly.

Pair Corralation between GreenTree Hospitality and Arcos Dorados

Considering the 90-day investment horizon GreenTree Hospitality is expected to generate 9.37 times less return on investment than Arcos Dorados. In addition to that, GreenTree Hospitality is 1.23 times more volatile than Arcos Dorados Holdings. It trades about 0.01 of its total potential returns per unit of risk. Arcos Dorados Holdings is currently generating about 0.11 per unit of volatility. If you would invest  716.00  in Arcos Dorados Holdings on December 28, 2024 and sell it today you would earn a total of  99.00  from holding Arcos Dorados Holdings or generate 13.83% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

GreenTree Hospitality Group  vs.  Arcos Dorados Holdings

GreenTree Hospitality

Risk-Adjusted Performance

Very Weak

Over the last 90 days GreenTree Hospitality Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical indicators, GreenTree Hospitality is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Arcos Dorados Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Arcos Dorados Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent fundamental indicators, Arcos Dorados displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with GreenTree Hospitality and Arcos Dorados

The main advantage of trading using opposite GreenTree Hospitality and Arcos Dorados positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if GreenTree Hospitality position performs unexpectedly, Arcos Dorados can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Arcos Dorados will offset losses from the drop in Arcos Dorados' long position.

The idea behind GreenTree Hospitality Group and Arcos Dorados Holdings pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.